Weak 5-Year Treasury Auction

The auction, which caps a week when the Treasury raised $78 billion in notes and bonds, may signal investors will have trouble absorbing the as-much-as $2.5 trillion in debt the U.S. is likely to issue this year to pay for a $1 trillion budget deficit and programs to spur the economy.

“We’re seeing a bit of indigestion,” said Larry Dyer, a U.S. interest-rate strategist with HSBC Securities (USA) in New York, one of 17 primary dealers that are required to bid in Treasury auctions. “It’s a mini bear market, and we’re underwriting in it.”

The yield on the benchmark 10-year note climbed 10 basis points, or 0.10 percentage point, to 2.76 percent at 2:17 p.m. in New York, according to BGCantor Market Data. The price of the 3.75 percent security due in November 2018 dropped 27/32, or $8.44 per $1,000 face amount, to 108 14/32. The 30-year bond yield rose 10 basis points to 3.51 percent. It touched 3.54 percent, the highest since Nov. 26.

And demand was somewhat tepid too:

The so-called bid/cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, fell to 1.98 from 2.06 at the last 5-year note sale. The average ratio at the past 10 sales was 2.12.